Consumer-Stock Rally May Help S&P 500 Rise: Technical Analysis

March 3 (Bloomberg) — The rally in U.S. consumer stocks indicates the Standard & Poor’s 500 Index has the momentum needed to surpass the 15-month high it reached in January, Oppenheimer & Co.’sCarter Worth said.

The Consumer Discretionary Select Sector SPDR Fund, an exchange-traded fund tracking 80 stocks such as Nike Inc. and Gap Inc., rose 1.6 percent on March 1 to $31, a level last seen in September 2008. The ratio between the ETF and another that tracks the entire S&P 500 climbed to 0.277, the highest since January 2007. When the ratio rises, it means consumer shares are outperforming.

Gains by companies reliant on consumer spending, which accounts for about 70 percent of the U.S. economy, show the market can overcome speculation that the recovery is slowing, Worth said. After the biggest rally since the Great Depression, the S&P 500 lost as much as 8.1 percent during the past six weeks as investors bet that the labor market isn’t improving fast enough and that European budget deficits will slow growth.

“Strength will resurrect itself and you will get back” to the January highs in the S&P 500, said Worth, ranked third among analysts who study price charts in Institutional Investor magazine’s 2009 survey. “If the sell-off from mid-January were the beginning of longer-term weakness, rather than a normal period of profit-taking, then you wouldn’t be getting action out of things like Nike.”

Four Straight Gains

Nike, the world’s largest shoemaker, has risen 11 percent since Feb. 8. The Beaverton, Oregon-based company posted four straight rallies before falling today.

The increasing breadth of the advance also shows the stock market will keep rising. Between March 9 and Dec. 31, 2009, 149 companies in the S&P 500 reached 52-week highs, according to data compiled by Bloomberg. That was twice the number of lows. This year, 20 times as many have risen to peaks.

“When you have a number of stocks breaking out to new highs and expanding,” Worth said, that signals “the bounce is intact and healthy.”